White Paper provides an analysis of the status quo as well as market deficiencies in the global derivatives market to create a blueprint for market safety and integrity / Blueprint outlines ways to effectively reduce systemic risk and increase financial markets stability

Deutsche Börse and Eurex published their White Paper entitled “The Global Derivatives Market – A Blueprint for Market Safety and Integrity” today. The current political and regulatory debate in both the U.S. and Europe is an intensive discussion on how to better safeguard financial market stability as one of the necessary consequences of the financial crisis. The aim of the paper is to contribute to this debate by laying out a market structure blueprint that effectively reduces systemic risk. It resumes the discussion of Deutsche Börse’s first derivatives White Paper, published in May 2008, which provided a descriptive introduction to the global derivatives market.

Andreas Preuss, Deputy CEO of Deutsche Börse and CEO of Eurex, said: “One major conclusion of the new White Paper is that merely introducing stricter regulatory and supervisory requirements may not suffice and that a strengthened market structure with built-in principles to minimize systemic risk appears to be necessary.”

Deutsche Börse and Eurex have published the new White Paper to provide interested readers with a comprehensive presentation of the subject matter. The paper discusses both the derivatives market’s resilience and its structural deficiencies against the backdrop of the crisis. It focuses primarily on the advantages of effective risk management and improved transparency, especially for OTC derivatives, to ensure that the derivatives market functions well as a whole. The blueprint provides key proposals on how to strengthen the market’s current structure:

1. Maximize the use of organized markets for derivatives trading

2. Maximize the use of central counterparties (CCPs) where trading on organized markets is not feasible

3. Bilateral collateralization of derivatives exposure, preferably handled by a neutral third party, where organized trading or use of CCPs is not suitable, and